Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
1)
1)
Which of the following should be considered when selecting a banker?
A)
Personalized service
B)
Specialization in the construction industry
C)
Convenient location
D)
All of the above
Answer:
D
A)
B)
C)
D)
2)
2)
A lease where ownership transfers at the end of the lease would be considered which of the
following?
A)
Operating lease
B)
Capital lease
C)
Long–term lease
D)
Short–term lease
Answer:
B
A)
B)
C)
D)
3)
3)
Which of the following describes a financial instrument which has the same interest rate for the
full term of the instrument?
A)
Fixed interest
B)
Variable interest
C)
Constant interest
D)
Static interest
Answer:
A
A)
B)
C)
D)
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4)
4)
Which of the following is not a closing cost?
A)
Underwriting fee
B)
Prepayment penalty
C)
Mortgage insurance premium
D)
Loan origination fee
Answer:
B
A)
B)
C)
D)
5)
5)
Short–term loans are loans with a term of ________.
A)
one year or less
B)
two years or less
C)
less than one year
D)
one month or less
Answer:
A
A)
B)
C)
D)
6)
6)
Which of the following would not be found on an amortization schedule?
A)
Monthly interest
B)
Monthly payment
C)
Monthly principal balance
D)
Monthly depreciation
Answer:
D
A)
B)
C)
D)
7)
7)
Which of the following requires the borrower to pay a percentage on the unused balance of a line
of credit?
A)
Simple interest
B)
Compensating balance
C)
Compound interest
D)
Commitment fee
Answer:
D
A)
B)
C)
D)
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8)
8)
Which of the following ignore the effects of compounding interest?
A)
Simple interest
B)
Nominal interest rate
C)
Annual percentage rate
D)
All of the above
Answer:
D
A)
B)
C)
D)
9)
9)
Which of the following are needed when applying for a loan?
A)
Tax returns
B)
Work on hand report
C)
Financial statements
D)
All of the above
Answer:
D
A)
B)
C)
D)
10)
10)
Which of the following equations is used to calculate loan payments?
A)
Single–payment compound–amount factor
B)
Single–payment present–worth factor
C)
Uniform–series sinking–fund factor
D)
Uniform–series capital recovery factor
Answer:
D
A)
B)
C)
D)
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
11)
Define compensating balance.
Answer:
A compensating balance requires that percentage of the maximum amount that may be borrowed from
the line of credit be placed in a low– or non–interest–bearing account.
12)
Define trade financing.
Answer:
Trade financing occurs whenever there is a delay between the supplying of material, labor, and
equipment to a construction project and the payment for these items.
13)
How are interest rates with different compounding periods compared?
Answer:
To compare interest rates with different compounding periods, the interest rates must be converted to a
common compounding period. The common compounding period used is one year, and the equivalent
interest rate is known as the yield, annual percentage yield, or APY.
3
14)
What is a line of credit?
Answer:
A line of credit consists of a lender committing to loan a borrower up to a specified amount of money
on an as–needed basis. The borrower may borrow up to the limit of the line of credit one week and pay
it off the next week.
15)
How is interest charged on credit cards?
Answer:
Most credit cards do not charge interest on purchases, provided the monthly balance is paid in full by
the due date. If the bill is not paid in full, interest is charged based on the average daily balance in the
same manner interest is charged on lines of credit.
16)
Why must loan document be read carefully?
Answer:
All loan documents should be carefully read and understood before they are signed. The loan
documents are legally binding contracts between the borrower and the lending institution.
17)
What is the difference between simple and compound interest?
Answer:
Simple interest does not pay interest on the previous period’s interest, whereas compound interest
pays interest on the previous period’s interest.
18)
Other than debt financing, what another source of funds is available to construction companies?
Answer:
Financing may also be obtained by selling equity in the company or project.
19)
Define secured debt.
Answer:
The borrower pledges specific assets as security for the loan or line of credit. In the event the borrower
defaults on the debt, the lender has the right to sell the asset to recover the borrowed money. A loan or
line of credit with this type of provision is known as a secured instrument or secured debt.
20)
Define maturity matching.
Answer:
Matching the term of the financing to the length of the financial need is known as maturity matching.
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Answer Key
Testname: C16
1)
D
2)
B
3)
A
4)
B
5)
A
6)
D
7)
D
8)
D
9)
D
10)
D
11)
A compensating balance requires that percentage of the maximum amount that may be borrowed from the line of
credit be placed in a low– or non–interest–bearing account.
12)
Trade financing occurs whenever there is a delay between the supplying of material, labor, and equipment to a
construction project and the payment for these items.
13)
To compare interest rates with different compounding periods, the interest rates must be converted to a common
compounding period. The common compounding period used is one year, and the equivalent interest rate is known
as the yield, annual percentage yield, or APY.
14)
A line of credit consists of a lender committing to loan a borrower up to a specified amount of money on an
as–needed basis. The borrower may borrow up to the limit of the line of credit one week and pay it off the next week.
15)
Most credit cards do not charge interest on purchases, provided the monthly balance is paid in full by the due date. If
the bill is not paid in full, interest is charged based on the average daily balance in the same manner interest is
charged on lines of credit.
16)
All loan documents should be carefully read and understood before they are signed. The loan documents are legally
binding contracts between the borrower and the lending institution.
17)
Simple interest does not pay interest on the previous period’s interest, whereas compound interest pays interest on
the previous period’s interest.
18)
Financing may also be obtained by selling equity in the company or project.
19)
The borrower pledges specific assets as security for the loan or line of credit. In the event the borrower defaults on the
debt, the lender has the right to sell the asset to recover the borrowed money. A loan or line of credit with this type of
provision is known as a secured instrument or secured debt.
20)
Matching the term of the financing to the length of the financial need is known as maturity matching.
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